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FINDING 2025-002 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Internal Controls Federal Agency: Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number and Year (or Other Identifying Number): CY 2021 Compliance Requirement: Reporting Audit Finding: Significant Deficiency Condition and Context An effective internal control system, which would include segregation of duties, was not in place at the Town in order to ensure compliance with requirements related to the grant agreement and the Reporting compliance requirement. Recipients are required to quarterly or annually submit Project and Expenditure (P&E) reports to the U.S. Department of the Treasury (Treasury). The reporting periods, as well as the respective due dates, are based upon type of recipient and its population, as well as the recipient's allocation amount. Information to be reported includes projects funded, expenditures, and contracts for the appropriate reporting period. The Town was classified as a metropolitan town with a population below 250,000 residents that received an allocation of less than $10 million in COVID-19 - Coronavirus State and Local Fiscal Recovery Funds (SLFRF) funding. As such, the P&E report, covering April 1, 2024 to March 31, 2025, was required to be submitted to the Treasury by April 30, 2025. The Clerk-Treasurer completed and submitted the annual P&E report during the audit period as required; however, the Town did not design and implement a review or oversight process for the report prior to submission. The lack of internal controls was a systemic issue throughout the audit period. Criteria 2 CFR 200.303 states in part: "The recipient and subrecipient must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient and subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." Cause A proper system of internal controls was not designed or implemented by management of the Town to ensure that P&E reports were prepared by one individual and reviewed by another individual before submission to the Treasury. Effect Without the proper implementation of an effectively designed system of internal controls, errors could occur and remain undetected. As such, the Town could not ensure that the reports submitted are materially accurate and correct. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the Town establish a system of internal controls and develop policies and procedures over the preparation and review of federal reports to ensure appropriate reviews, approval, and oversight are taking place. Additionally, management should develop policies and procedures to ensure that the Town provides the Treasury with complete and accurate information for all reports. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.